1. What is Gratuity?

Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for the services rendered. In India, it's governed by the Payment of Gratuity Act, 1972, and is calculated based on the employee's last drawn salary and years of service.

2. How Gratuity is Calculated

The standard formula for gratuity calculation is:

Where:

• Last Salary — Basic salary plus dearness allowance at the time of leaving
• Years — Total years of continuous service (rounded to nearest full year)
• 15 — Represents 15 days wages for each completed year
• 26 — Number of working days in a month

3. Eligibility Criteria

Details: To be eligible for gratuity under Indian law, an employee must have completed at least 5 years of continuous service with the same employer. The maximum gratuity amount is currently ₹20 lakh (as per the latest amendment).

4. Using the Calculator

Tips: Enter your last drawn basic salary plus dearness allowance and your total years of service. The calculator will compute your gratuity amount based on the standard formula.

5. Frequently Asked Questions (FAQ)

Q1: Is gratuity taxable in India?
A: Gratuity received by government employees is fully exempt from tax. For others, the least of the following is exempt: (i) ₹20 lakh, (ii) actual gratuity received, or (iii) 15 days salary for each completed year.

Q2: Can gratuity be paid before 5 years?
A: Normally no, except in case of death or disablement of the employee.

Q3: How is part of a year calculated?
A: Any period above 6 months is rounded to the next full year. Less than 6 months is ignored.

Q4: What if the employer doesn't pay gratuity?
A: Employees can file a complaint with the labor commissioner within 90 days of becoming eligible.

Q5: Is gratuity applicable to contract workers?
A: Yes, if they meet the eligibility criteria of 5 years continuous service with the same employer.